State report slams tax abatements

Aug. 19, 2010

Millville, Vineland and Bridgeton have used the abatements to lure businesses. / File photo

Written by

MICHAEL SYMONS

Gannett New Jersey

MILLVILLE PRAISED

Here is an excerpt from a report released Wednesday from the Office of the State Comptroller about municipal tax abatements:

"Some municipalities are making substantial efforts in this regard (monitoring abatement performance). For example, the city of Millville reported doing more than the norm by requiring annual certifications from abatement recipients that address agreement terms. Typically, these certifications include a list of jobs created and any relevant changes to the project itself or to the entity receiving the abatement. More recent abatement agreements in Millville also include provisions that make clear that if a developer fails to fulfill the terms of the abatement agreement, the agreement can be rescinded. Millville in fact reported having rescinded several such agreements."

More

ADVERTISEMENT

TRENTON -- A new report from New Jersey's state comptroller criticizes municipalities' use of tax abatements to attract developers, saying the program is barely monitored by the state and costs school districts and counties valuable tax revenues.

Hundreds of millions of dollars in property tax revenue are passed up by municipalities each year to lure development, particularly in distressed or blighted areas. But that has the impact of shifting the costs for supporting counties and schools to taxpayers in other towns, even other parts of the state, the report says.

Municipal governments often receive more funds for themselves by allowing payments in lieu of taxes, rather than actually assessing property taxes. But none of those funds are shared with local schools, which then have to rely increasingly on state aid. And only 5 percent of the funds are shared with the counties, the report says.

"When the entity in charge of deciding who receives a tax break knows it will profit from its decision regardless of its merits, that's a recipe for poor decision-making," state Comptroller Matthew Boxer said.

Among the 20 municipalities with the widest use of tax abatements are Asbury Park, Bridgeton, Camden, Collingswood, Gloucester Township, Long Branch, Millville, New Brunswick, Rahway, South Bound Brook and Vineland, as well as the two biggest cities in the state, Newark and Jersey City.

Revenue from payments in lieu of taxes -- PILOTs, in government parlance -- is not subject to the state's property tax caps, which Boxer said could add to local incentives to award them.

The comptroller's report said information about tax abatement agreements should be more available to the public, PILOT payments should be shared proportionately with schools and counties and reforms should be made to the process of analyzing the costs, locations and timetables for awarding tax abatements.

Among the instances highlighted by the comptroller's report:

Within six months in 2007 and 2008, Gloucester Township granted short-term abatements to three Wawa stores expanding into Super Wawas -- all within 2 to 4 miles of each other, in a 5-mile radius that includes 22 Wawas.

(Page 2 of 2)

The school district in Hoboken, on the Hudson River waterfront across from Manhattan, will miss out on at least $3.5 million in revenue this year due to tax abatements. That's more than double the district's loss of state aid this year.

Statewide distribution of school aid may also be affected, the report says. Development yielding PILOT payments to a municipality isn't reflected in the local property tax base, meaning the state's funding formula provides extra funds because of its artificially low view of the community's wealth.

"Taxpayers throughout the state pay the resulting bill," the report says. "This system allows the municipality, in essence, to hide its true wealth from the school district and the state, resulting in the school district's continued reliance on the state for funding."

Some Republican state lawmakers have complained for years about the impact PILOTs and tax abatements have in places such as Jersey City, where $2 billion in property value is under the program. Sen. Michael Doherty, R-Warren, called for Boxer's recommendations to be enacted and for the Senate to hold hearings.

"The idea that they should be paying less so my constituents -- many of whom are retired, on a fixed income or struggling working families, are poor -- have to pay more in property taxes and income taxes down to Trenton so these tax deals can be given to condos in Hoboken, Jersey City and Asbury Park, it doesn't make a lot of sense," Doherty said.

Michael Cerra, a senior legislative analyst for the New Jersey State League of Municipalities, said regarding the Hoboken numbers cited that one can't assume the properties would have been developed, or at least at the same value, without the incentives.

Cerra said cities and towns use PILOTs to compete with local economies in other states despite New Jersey's high property taxes and was resistant to the idea of giving counties and school districts a vote on whether to award abatements.

"We fear that increased involvement by these entities and greater state oversight will only further delay and discourage local development initiatives, which are vital for producing immediate jobs for our fellow citizens and long-term ratable growth," Cerra said.

State government doesn't monitor the award of tax abatements and only receives documents about them sporadically, then doesn't review them due to staff shortages. It last collected comprehensive data on abatements in 2003 and hasn't implemented a rule it adopted in 2009 requiring additional information on abatements to be filed with the state.

The report says that tax abatements also yield opportunities for cronyism in the selection of developers and specifically notes the redevelopment-related corruption convictions of former mayors of Asbury Park, Hoboken and Marlboro.

You will automatically receive the TheDailyJournal.com Top 5 daily email newsletter. If you don't want to receive this newsletter, you can change your newsletter selections in your account preferences.